There has been much discussion about the impact of the public option on small companies during the debate over health care reform. The argument goes that many companies will choose to drop their health plans in favor of paying a fine equal to 8% of their payroll costs. This in turn would force employees into the public option.
Employees of small companies are right to worry because the economics support making such a decision.
Generally, if your company is under 50 employees the benefit policies offered by the major insurers are standardized. The company can manage their cost by tweaking a combination of variables, including deductibles, aggregates, co-pays, and prescription plans. Having recently gone through this exercise with one company the total annual cost of renewal represented 12% of payroll. I believe this to be representative for like companies under 50 employees and in an industry that competes for talent. Another point of reference is that for budget calculations companies will assume a fringe rate of 25- 30%. It is hard to imagine the cost of health benefits representing less than 50% of the fringe rate in any case.
As a small business owner and all things being equal I would chose 8% over 12%. However, what we are missing is the other side of the equation, namely, what benefits are contained in the public option? The lack of specifics has understandably unnerved the public. Perhaps we will gain more insight from President Obama’s address to Congress next week. Or not.